Ethanol Demand and Corn Prices: Impacts on Cattle and Hog Producers

John M. Marsh (406) 994-5621 [email protected] Increases in the demand for cornbased ethanol have contributed to substantially higher corn prices. For example, Central Illinois corn prices increased from $1.84/bushel in the fourth quarter of 2005 to $3.28/bushel in the fourth quarter of 2006, an increase of 78.3 percent (LMIC, 2006). Much of the increase in corn prices occurred during the fall of 2006 when, between August and early December, the December 2006 CBOT corn futures increased by nearly 60 percent (Agricultural Online, 2006). Corn constitutes about 95 percent of total feed grain use (corn, oats, barley, and sorghum). These corn price changes, therefore, have increased feed costs and breakeven prices for cattle and hog finishers. Economists generally believe that the U.S. goal of energy independence will sustain strong demand for ethanol and other bio-fuels, thus, future corn prices are likely to be higher than they were in the 1990’s and from 2000 to 2005 (Caldwell, 2006).